COST & MANAGEMENT

ACCOUNTING

Prof. Agnes S. Joseph

BRANCHES OF ACCOUNTING
 Financial Accounting

• Financial accounting is the field of

accountancy concerned with the preparation
of financial statements for decision makers
such as stockholders, suppliers , banks ,
employees, government agencies , owners,
other stakeholders and credit rating agencies.
 Financial Accounting
• Information is produced primarily for external
stakeholders.
• Purpose: reporting back to owners and others.
• Covers the past - what has happened.
• Covers the whole company - not divisions or
departments.
• Subject to accounting regulations and law.
• Quantifies information in monetary terms and
values.
• The end product is the annual reporting package.
 Management Accounting
• Provides information for internal decision making.
• Internal use - management accounts are private
documents.
• Not much emphasis on recording - instead the
information is used for costing, planning, control,
decision making.
• Focuses on the present and future.
• Covers divisions, departments or units within the firm.
• Information prepared when needed.
• Both monetary and non-monetary information.
• No set rules and regulations on format.
 Management Accounting

• Accounting carried out within the business for its

own internal uses, to assist management in
controlling the business and in making business
decisions.
• The provision of financial and non-financial
information to top level management for costing,
planning and control, and decision making.
• Management accounting is an integral part of
management, requiring the identification,
generation, presentation, interpretation and use of
information. (CIMA).
 Key points
• Designed for internal management purposes.

• Involves the provision of both financial and non-

financial information .

• Emphasis on
– Measurement
– Controlling
– Decision Making
 NEED FOR MANAGEMENT ACCOUNTING

• Management accounting developed in the late 19th

century out of financial accounting because more
detailed and timely information was needed for
costing and decisions making.
• This was a recognition of the limitations of financial
accounting for decision making purposes.
• Statements produced by financial accounting
– are out of date by the time they are available.
– are orientated towards the past
– involve a high level of aggregation (whole organisation
rather than individual section of product)
Increased relevance of management accounting

• Customer orientation and emphasis on customer

satisfaction - requires greater responsiveness from
business.
• Lean production including Just In Time(JIT) and time
based competition - the importance of eliminating
waste.
• Need for a positive approach - to control costs, to
produce detailed forecasts, and improve the quality
of decision making.
• Globalisation - increased need to be competitive.
 How MA differs from FA
• Is non-mandatory - as it is purely internal , it is
not required by statute and not subject to
outside control with regards to the method
• Includes the use of non-monetary data.
• Includes the use of qualitative data instead of
quantitative data.
• Deals with forecasts and plans rather than
what has happened.
• Is designed for internal use rather than
reporting to stakeholders.
 Comparison: a summary

Financial accounting Management

accounting

Users External Internal

Time focus Past Present and future

Governed by Regulations The needs of

management

Format Standard Flexible

Coverage Whole company The unit

Purpose Reporting back To aid decision

making